Employer of Record: Hiring Global Talent, Flexibly – But With a System

Marcus

Oct 21

9 min read

There are regulatory rulings that read like a bad rerun. In October 2024, Germany's Federal Employment Agency (Bundesagentur für Arbeit) issued internal guidance declaring the Employer of Record model essentially high-risk — anyone using it, it warned, was skating close to illegal temporary staffing.

A year later, in October 2025, the same agency did a complete about-face: most existing EoR setups, it now said, are perfectly fine after all. Twelve months, two flatly contradictory positions, and an HR world left scratching its head. Welcome to Employer of Record — the model that's currently proving just how unfinished the rulebook for the new world of work still is.

What's Actually Behind the Model

The core idea is deceptively simple. A company wants to hire someone in Spain, Kenya, or Singapore, but has no legal entity there and no appetite to set one up for a single hire.

The Employer of Record (EoR) steps in: it formally becomes the local employer, handling the contract, payroll, and local compliance — while day-to-day management stays exactly where it was, with the hiring company. For the employee, almost nothing changes day to day. For the company, the entire bureaucratic scaffolding of a foreign subsidiary simply disappears.

In practice, it looks like this: a Berlin scale-up finds the perfect developer in Lisbon but doesn't want to risk setting up a Portuguese entity for a single hire — notary, local tax advisor, months of lead time and all.

The EoR takes on the formal employment contract under Portuguese law, handles local payroll tax and social contributions, and the developer shows up to Monday stand-up exactly as normal, just from Lisbon. For mid-sized companies, this scenario isn't exotic anymore — it's increasingly routine: the specialist who moves back to their home country for family reasons and whom you'd rather not lose, the pilot project in a new market that doesn't yet justify its own entity, or simply the realization that the right person doesn't live in your postal code.

That's exactly why the business is booming. The global EoR market was valued at roughly USD 6.8 billion in 2025, with USD 7.45 billion expected for 2026, and forecasters expect it to approach USD 16 billion by 2035 — an annual growth rate of more than 9 percent.

The drivers are the same forces keeping German TA teams up at night: chronic domestic talent shortages, the normalization of remote work, and a workforce that increasingly thinks borderless while companies keep planning in national boxes.

Providers like Deel, Remote, Papaya Global, and Oyster HR built entire business models around this gap, and by now even traditional mid-sized companies — the kind that never seriously considered international hiring before — are following suit. It's also worth noting that this debate is far from a purely German phenomenon: Austria and Switzerland each have their own rules for the model — and just how differently the Swiss angle plays out is covered further down.

The Federal Employment Agency's Roller Coaster

Back to the reversal mentioned at the top, because it's the real reason this topic is back on every HR desk. The decisive question under German law is whether there's a "sufficient domestic connection" (Inlandsbezug). If there is, Germany's temporary staffing law (AÜG) kicks in — and an EoR without a German staffing license is operating illegally, facing fines of up to €30,000 and the unpleasant side effect that an employment relationship between the specialist and the client company can be retroactively deemed to exist, complete with full wage, tax, and social security obligations.

The autumn 2025 guidance does bring real relief here: if someone works exclusively online from abroad and never travels to Germany for work purposes, there's no domestic connection — the AÜG doesn't apply, and no staffing license is required. Sounds like the all-clear, but it's only half the story. The moment that same person flies in for even a short workshop or client meeting, the domestic connection can suddenly reappear — and with it, the full risk. There's still no supreme court ruling that settles this definitively. Anyone who thinks the issue is off the table because of the new guidance is mistaking a breather for a solution.

If the specialist is deliberately deployed within Germany, the picture changes fundamentally: this almost always counts as genuine temporary staffing, and the EoR needs a valid staffing license, must respect the 18-month maximum assignment period, and generally owes equal pay from month nine onward. Anyone who misses this because the EoR contract sounds like straightforward outsourcing risks the same consequences as the classic domestic case — with the added surprise of not having seen it coming.

The Pitfalls Nobody Talks About

Beyond the staffing-law question, two further risks tend to get lost in the public debate.

First, cost-shifting: many EoR contracts are worded so that costs and liabilities that should sit with the employer — meaning the EoR itself — quietly land on the client company instead. Wrongful-termination proceedings, severance pay, employment disputes: anyone who doesn't read the contract line by line ends up paying twice — once for the service, and once for the risk they thought they'd outsourced.

Second, permanent establishment risk — a topic that barely registers in recruiting circles but immediately gets tax departments' attention. If a person employed abroad effectively acts in ways that create a fixed place of business for the German company there — say, by signing contracts or representing the company externally — that can trigger a taxable permanent establishment abroad.

That has nothing to do with recruiting in the narrow sense, but it's exactly why an EoR project should never stay a pure HR matter. Anyone who doesn't loop in legal and tax advisors early is building a problem that only surfaces once the first tax audit rolls around.

And What Does This Look Like From a Swiss Perspective?

The scenario that actually matters for Swiss companies is usually not "how do we bring someone into Switzerland" — it's the mirror image of the Lisbon example above: a Zurich-based company finds the right specialist in Casablanca or Marrakech and wants to hire them without setting up its own entity where that person lives. That's exactly the case EoR was built for — and it's exactly where the Swiss angle plays out differently than the country's strict staff-leasing rules might suggest.

Switzerland's Employment Services Act (Arbeitsvermittlungsgesetz, AVG) and its licensing requirements are built almost entirely around Switzerland as the country of deployment: they govern who may lend staff into Switzerland, and they require Swiss providers to hold a federal license if they lend staff abroad themselves. For the case where a Swiss company is simply the customer of a foreign EoR whose employees work exclusively in the target country, guidance notes and commentary on the AVG reveal a conspicuous gap: the law wasn't written with this scenario in mind, and there's no explicit clarification. In practice, that means the licensing requirement usually isn't the bottleneck here — the real bottleneck lies elsewhere.

Namely, first, in local employment law: the specialist in Morocco formally becomes an employee of the local EoR and is therefore subject to Moroccan labor law. Anyone who doesn't check whether the chosen provider is actually licensed and established in the target country has done nothing more than push the due-diligence problem across a border. Second — and this is what many Swiss finance departments tend to overlook — is permanent establishment risk. Switzerland has a double taxation treaty with Morocco, and if the specialist does more on the ground than dutifully work at a laptop — say, signing contracts on the Swiss company's behalf or actively representing it externally — that can create a taxable permanent establishment in Morocco. The company then owes profit tax there — exactly the administrative burden the EoR was supposed to avoid, sneaking back in through the side door.

Third, social security. Within the EU and EFTA, a coordinated system and the A1 certificate provide clarity on who stays insured where. Outside that area — which covers most classic EoR destination countries — it comes down to bilateral agreements that often simply don't exist. Without one, the situation is usually straightforward: the specialist is insured through the local EoR under the host country's system, and continued Swiss old-age (AHV) or pension (BVG) coverage doesn't happen automatically. For a genuinely local new hire, that's unproblematic; for someone being temporarily posted from Switzerland, it's a point to clarify upfront rather than discover afterward.

The other, stricter scenario — bringing someone into Switzerland on a permanent basis through a foreign provider — is a completely different matter: that requires a Swiss-based staffing provider with a cantonal license and, for cross-border assignments, an additional federal license from SECO, plus a deposit of CHF 50,000 to 150,000 and compliance with the collective agreement for staff leasing that's been declared universally binding since 2012. Foreign EoR providers generally aren't allowed to act as the lender here at all. But as noted, that's the rarer case. For most Swiss companies looking to grow internationally, the real homework lies elsewhere: vet the EoR partner in the target country carefully, clarify the permanent establishment risk with tax advisors before signing anything, and communicate openly with employees about what social security coverage does and doesn't apply. That's exactly the system that gives the model its name.

Not Every Provider Is Equally Reputable

One point that tends to get lost in the whole staffing-law debate: the EoR market has grown large enough that it now attracts providers who don't take their own due diligence all that seriously. Companies hiring an EoR should therefore not just compare price, but ask just as persistently how long the provider has actually been active in the target country, whether it works with its own legal experts there or has simply bought together a loose network of partners, and how transparent it is about extra costs that only show up on the invoice. References from other German or Swiss mid-sized companies are often more telling than any glossy whitepaper, because they show how a provider actually reacts when an agency like the Federal Employment Agency changes its mind overnight.

Why the Model Can Still Be a Good Idea

Given all these warnings, it would be wrong to write EoR off entirely. For plenty of situations, it's simply the smartest option available: testing a new market before committing to it, temporarily reinforcing an international project team, or keeping a top performer who's moving abroad for personal reasons and whom you'd otherwise lose. Talent shortages turn geographic flexibility into a genuine competitive advantage, and anyone who can use it without spending months building a foreign entity simply has more options than the competition.

EoR is a bit like a leased car: you don't fully own it, but you're still responsible for how it's used — and if you ignore that, you usually find out the hard way, at the next tax audit or the next regulatory reversal.

The difference between companies that have good experiences with EoR and those that end up in court later rarely comes down to the model itself — it almost always comes down to the diligence applied when setting it up. Anyone who clarifies upfront whether and how often the specialist will travel to Germany, who actually asks to see the EoR's staffing license instead of just taking its word for it, who negotiates cost clauses instead of signing them as-is, and who brings tax and legal counsel to the table from day one, gets real flexibility out of EoR — without the risks hiding in the fine print.

The real lesson from the Federal Employment Agency's guidance roller coaster isn't "EoR is safe" or "EoR is dangerous." It's the realization that the legal landscape here is still shifting, often faster than any given contract accounts for. Anyone recruiting internationally shouldn't treat this as a one-off legal checkbox, but as an ongoing process to revisit at least once a year. That's exactly what separates the companies that win global talent with real flexibility from the ones that eventually get blindsided by the next reversal.

Sources

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